The sad state of personal finance education

Education in the United States is a topic that provokes a lot of concern these days. We seem to be falling behind other countries in many areas, especially the sciences and mathematics, and that truly could undercut our future prosperity as a nation. Yet little attention is paid to educating our citizens in personal financial planning. There never has been a comprehensive attempt to provide even basic education in this area -- but all evidence suggests it is sorely needed. I have some suggestions that I hope will help.

I learned a great deal about personal finance when I was a teenager from my brother (now a retired judge) who created a course in personal finance at a local college in Massachusetts. I stole his idea. While I was working for a bank in New York City, I learned of the New School for Social Research, which offered hundreds of nondegree courses to the general public -- but none in personal financial planning. I wrote a proposal to one of the deans, and he brought me on to teach a course in the subject. I taught the course for 18 years to young and old alike -- to men and women, high school graduates and holders of PhDs, and several physicians. They all had one thing in common: no education in personal finance. Even today someone can obtain several advanced degrees and never learn even the basics of the subject.

Fortunately, many schools, colleges and government agencies are introducing new course programs, often in collaboration with financial services companies. However, taken as a whole, the American education system isn't taking this challenge seriously. Only 13 states require students to take a personal finance course in order to graduate from high school. That leaves the lead teaching role to parents.

Statistics show that future retirees are not saving enough to ensure a prosperous retirement. We should get our children into the habit of saving early. One way to start is splitting allowances into two portions, one for spending and one for saving. If your child wants an expensive item, you can show him how to save more of his allowance for it.

Once your children start working, encourage them, to save a portion of their earnings. Encourage them to start investing at an early age, including in tax-advantaged retirement funds. One approach that I recommend, and use myself even now, is a monthly investment in no-load mutual funds. T. Rowe Price (TRowPrice.com) offers several well-managed no-load funds that allow people to invest as little as $50 a month. They are some of the few funds that offer good investment opportunities for such low monthly amounts.

When you make any financial decisions in your home, whether it is obtaining a new credit card, initiating or refinancing a mortgage, shopping for a new or used car, or purchasing insurance, why not explain and discuss the issues with your children as soon as they are old enough to understand? Once your children are in high school, they are old enough to have meaningful discussions about college costs and financing alternatives.

Indebtedness from college loans has risen to shocking levels. Do your children a favor: Before it comes time to apply for financial aid, make sure they understand debt and how too much of it can make life difficult.

The earlier this kind of education begins, the better. Vanguard has just rolled out a free basic financial education program to schools. This program is interactive, and allows students to experience the economic facets of adult life. They earn a salary for doing a classroom job, earn bonuses for outstanding performance, and must use some of their income to "rent" their desks. Details regarding this program are available at http://www.myclassroomeconomy.org. The program was developed by award-winning educator Rafe Esquith, and it is free of charge to teachers from K-12. If you have children in these grades, ask thier teachers to look into it.

Most experts who study the subject lament the fact that the American public just isn't getting any savvier about personal finance. Some studies even reflect declining "financial literacy." Is it any surprise that Bernie Madoff and other scammers have been successful, or that millions of Americans went in over their heads with mortgages they didn't understand? Programs like the one introduced by Vanguard can help the next generation of savers and investors avoid these pitfalls. However, we have a long way to go.